FIRST LECTURE

PROCESS OF INDUSTRILIZATION IN PAK

 At time of partition no industries in Pakistan
 Famous for agricultural products like cotton and Jewels
 Main trading sector were India and Britain
 To protect their trade Pak India and Britain had an agreement on British
value of currencies that is when value of Britain value of currency will
change so will India and Pakistan value of rupee or currency will change
 India is major trade partner in Britain
 India purchasing raw material from Pak
 In 1948 when brutish value was devalued so did India government, but
Pakistan refused to devalue its currency
 People say to achieve economic growth
 Reason for not devaluing would mean they would if India would devalue,
they are purchasing goods from Pakistan would become expensive for them.
More dollars must be paid for the raw materials.
 Also, another reason was to show that Pakistan was independent
 It was a political decision not an economic policy
 In retaliation India stopped trade with Pak
 This led to Balance of payment problems as foreign reserves spending
increased then receiving foreign reserves
 Pak was importing consumer goods then exporting it
 In 1950 between north and south Korean war took place, in anticipation to
third world war people started piling commodities
 When people bought things in bulk, so Pak sold many more raw materials
 As not devalued currency we sold products and received more dollars, so
we were at a benefit
 Price of commodities during war were high
 We had goods in abundance that were unsold due to trade ban with India
 We had trade relations with other countries
 Korean war saved us, it was a cold war
 War was for 1 and a half year in 1952
 When war ended pack suffered balance of payment problems as we were
dependent on imports as we produced no consumer goods
 Govt imposed tariffs and quotas on imports to limit quantities of goods
imported to reduce balance of payment problems
 Tariff structured was diversified
 Tariff are high on consumer goods and low on capital goods
 People beneficiary of the warriors or traders as importing consumer goods
and selling them to make profits
 They instead focused on the idea of importing capital goods as tariffs on
them were low
 Our currency was overvalued, so it was cheaper to import capital goods from
abroad
 Raw material and cheap labor available in abundance so manufacturing cost
were low, cost of consuming goods low in Pakistan
 Prices of consumers goods high in Pakistan with high tariffs on them as we
imported them and were not producing them
 This is how industrialization started in Pak
 In 1958 government changed
 Process of industrialization is called imports of subsidization
 Reason was to produce substitutes of commodities
 This industrialization helps to save foreign reserves not to earn them
 These industries remain dependent upon imports of equipment and
machinery
 This industrialization took in pak
 In 1958 there was change in pack govt like we had military govt
 This govt had good relations with the western world
 We became allies of western world
 Govt of Pakistan had foreign reserves, earning foreign exchange
 Generous Policies implemented so that pak can grow
 Growth in industries that year
 Discussed earlier that during agriculture periods, govt of pak had various
polices through which government was providing variety of seeds and
agricultural machinery, fertilizers and equipment was subsidized at
subsidized rate and was doing this because Govt of pakistan did this because
 it had more money. They had money so they had generous policies. E.g.
bonus voucher schemes.
 Industrialization during those years was focus on import subsidization to
produce goods that can be substituted for imported goods. There was a bias
against pakistan’s exporters. To save foreign exchange reserves was the aim
 (
 Biasness against the exporters as we had over valued exchange rates
 This leads to more expensive exports due to this over value of exchange rate
 By using bonus vouture scheme, it was for exporter, if they exported goods,
the govt would give voucher of certain face value that is percentage of total
amount of export earnings. Voucher used to import “anything” from abroad
 If exports are done for example for value 100 dollars and exchange rate is
4.75. Exported would get 4.75 multiply by 100 dollars that is 475 rs.
 To encourage exporters, government was giving 20% vouture of export
earning which means vouture face value would be like 95RS so exports can
use vouture to import from abroad without any license by the govt.
 Using vouture was easy way to import things from abroad- no license
needed from government etc.
 Vouture was transferable so it traded in secondary market
 People pay 50% premium to buy the vouture
 Example if someone earned a bonus vouture with face value of 95Rs, it
means it can be sold for 142.5 Rs
 If exports are done for 100dollars then export earnings would done at 475
with vouture face value of 95 rs and the vouture can be sold at 50% premium
for 142.75.
 Total earning is 6.175 RS not 4.75rs. Govt was able to devalue the currency
and remove the biasness. This led to growth in the industry.
 Many people said government created growth was for few people. It created
poverty in Pakistan. Number of poor people increased in that time. We need
to measure poverty
 Absolute poverty- measure the number of people are poor. The ways:
1. Head count ratio: measure the number who are living below poverty
line. Poverty line is called $1 per person, don’t have 1$ to spend a day
then they are considered as poor. It is calculated for the household e.g.
2 people earn 2$ out of 6 total family members then they are
considered poor.
 Relative poverty- calculate how income is distributed. Evenly or unevenly.
(unevenly distributed means relative poverty is high)